Thirty-three flawed Theses

Five hundred years ago, so legend has it, a dissident priest called Martin Luther nailed a list of 95 "theses" to the door of the Castle Church in Wittenburg. His action launched the Protestant Reformation. 

Last week, the dissident economist Steve Keen "nailed" a list of 33 Theses to the door of the London School of Economics. His aim was to launch a Reformation in economics as significant as the religious Reformation that Luther started. It was a bold gesture.

But for such a movement to take hold, there has to be substance in the criticisms. And as I read the 33 Theses, my heart sank. For these are in no way like the 95 Theses.

Luther's 95 Theses are a brilliantly argued academic case against the (then) Roman Catholic doctrine of indulgences, which was a clerical scheme for fleecing people of their money by promising them salvation. The money was supposed to go to the poor, but almost never did. Instead, it went to enrich both the sellers of indulgences and the Church itself. It was, in short, a protection racket.

Luther's critique was utterly brutal, not because it presented an alternative to Roman Catholic teaching, but because it was faithful to it. In Theses 8 and 9, for example, he points out that the "penitential canons", which define the Roman Catholic Church's doctrine of repentance, exempt the dying from the need to do penance for salvation:
So telling the dying to buy indulgences to avoid being consigned to purgatory, as was common practice at the time, broke the Catholic Church's own rules. Luther goes on to censure both the priests selling indulgences to the dying and the bishops turning a blind eye to the practice:
And he then reminds the readers what the penitential canon actually says:
This is merely one example in what is a simply devastating critique. But the 95 Theses are concerned only with one doctrine. Luther did not attack the teaching of the Catholic Church, as is often alleged. He was exposing the corruption that ran through the Church from top to bottom like a disease. And his call was for reform, as Thesis 91 shows:
Calling corrupt institutions to repent and reform has been the role of prophets for millenia. Luther was merely the latest in a long line. I do recommend reading the whole 95, in order. They tell a story which the Church at that time was not willing to hear.

Had the 33 Theses been so narrowly focused, and so deeply rooted in the fundamental teachings of economics, they would potentially have been equally devastating. But they aren't. Rather than delivering a detailed critique of one aspect of mainstream (macro) economics, they skate across the surface of the entire field. And even more importantly, they seem intended not to remind the economics establishment of its own teaching, and call it to repent and reform, but to set out a completely different agenda. So, for example, Larry Elliot complains that "complex mathematics is used to mystify economics, just as congregations in Luther’s time were deliberately left in the dark by services conducted in Latin." I don't disagree - indeed I have complained myself about the way complex mathematics and economics jargon combine to make economists some sort of priestly caste. But the use of Latin in church services is simply not what Luther was complaining about.

As I read the 33 Theses, I found myself becoming more and more disappointed. They don't demonstrate enough scholarship to constitute a serious attack. Even worse, they don't even clearly define what they are attacking. What does "neoclassical economics" even mean, or "mainstream economics"? The piece appears to use these terms interchangeably, but never defines them anywhere.

But worse, the authors commit exactly the same sins of which they accuse the economics establishment. Here, they complain that economics has become dictatorial:
First, within economics, an unhealthy intellectual monopoly has developed. The neoclassical perspective overwhelmingly dominates teaching, research, advice to policy, and public debate. Many other perspectives that could provide valuable insights are marginalised and excluded. This is not about one theory being better than another, but the notion that scientific advance only moves ahead with a debate. Within economics, this debate has died. 
But then they take it upon themselves to define what the "purpose of economics" should be:
1. The purpose of the economy is for society to decide. No economic goal can be separated from politics. Indicators of success represent political choices.  
2. The distribution of wealth and income are fundamental to economic reality and should be so in economic theory.  
3. Economics is not value-free and economists should be transparent about the value judgments they make. This applies especially to those value judgments that may not be visible to the untrained eye.  
4. Policy does not ‘level’ the playing field, but tilts it in a direction. We need a more explicit discussion of what sort of economy we want, and how to get there.
With the exception of Thesis 4, these rules don't appear to leave any room for debate. But the authors don't have any more right than the "neoclassical" economists they so despise to set these rules. Where is the scholarly critique to back these statements? Where are the references to the founding fathers of economics? In short, where is the authority?

Sadly, this opening section set the tone for the entire piece. Here they are, dictating how economists should treat the natural world:
8. Feedbacks between the economy and the ecology cannot be ignored. Ignoring them to date has led to a global economy that already operates well outside the viable thresholds of the ecology that houses it, yet requires further growth to function. But economics must be grounded in the objective constraints of the ecology of the planet. 
I am flabbergasted. Economics is all about the allocation of scarce resources. How on earth can these people say that economics "must recognise" that resources are scarce? A fair critique would be to say that old assumptions about the factors of production need to be revisited in the light of climate change and pollution, since we now know that air, water and land can be degraded by human activity. But mainstream economists have certainly not been blind to this. The trouble is that solving it is beset with "tragedy of the commons" type problems, as Jean Tirole (by any standard a mainstream economist) has eloquently pointed out. Everyone wants the problem solved, but no-one wants to pay for it.

It gets worse. Luther would be turning in his grave if an argument like this were used about the Christian Church:
13. Since different economies have different institutions, a policy that works well in one economy may work badly in another. For this reason among many others, it is unlikely to be helpful to propose a universally applicable set of economic policies based solely on abstract economic theory. 
Eh, what? The way different peoples choose to structure their economies changes the underlying laws of economics? Heaven help us. More damage has been done by politicians believing the laws of economics don't apply to them than almost anything else. If you don't believe me, read this paper by Rudiger Dornbusch, and weep over those dying of hunger in today's Venezuela, where exactly this mistake has been made. This is not to say that policy should not be adapted to local conditions, but it surely needs to be rooted in the economics equivalent of Scripture.

Then there is this:
16. People are not perfect, and ‘perfectly rational’ economic decision-making is not possible. Any economic decisions that have something to do with the future involve a degree of unquantifiable uncertainty, and therefore require judgement. Mainstream economic theory and practice must recognise the role of uncertainty.
Now, it is fair to say that the Efficient Markets Hypothesis and "rational expectations" led financial economists, at any rate, down a very deep rabbit hole. Rediscovering Knightian uncertainty, and perhaps humility as well, would be a very good thing. But the role of uncertainty runs like a golden thread through the General Theory of John Maynard Keynes, the founding father of macroeconomics. Is Keynes not mainstream? Haven't the authors simply missed a golden opportunity to call the macroeconomics profession to repent and return to the true faith?

Really, this is my critique of the whole 33 Theses. Instead of homing in on areas where the economics profession appears have to lost its way, and using deep scholarship and impeccable logic to expose error and corruption, as Luther did, the authors have introduced what amounts to a new religion and demanded that what they call "mainstream" economists adopt it, without ever explaining exactly why they should. This is indeed a missed opportunity.

To show just how badly the opportunity has been missed, I want to return to Luther. In Thesis 11, quoted above, there is a Scripture reference. The reference is to the Parable of the Weeds, Matthew 13:25-30 ("tares" is an old name for weeds). Emphasis is mine:
25 Jesus told them another parable: “The kingdom of heaven is like a man who sowed good seed in his field. But while everyone was sleeping, his enemy came and sowed weeds among the wheat, and went away. 26 When the wheat sprouted and formed heads, then the weeds also appeared. 27 The owner’s servants came to him and said, ‘Sir, didn’t you sow good seed in your field? Where then did the weeds come from?' 28 ‘An enemy did this,’ he replied. “The servants asked him, ‘Do you want us to go and pull them up?’29 ‘No,’ he answered, ‘because while you are pulling the weeds, you may uproot the wheat with them.Let both grow together until the harvest.30 At that time I will tell the harvesters: First collect the weeds and tie them in bundles to be burned; then gather the wheat and bring it into my barn.’ ”
Luther implies that canon laws - i.e. the Church's own teaching - had been corrupted by the practice of selling indulgences to the dying. He roots his argument firmly in the teaching of Jesus Christ, the foundation upon which the Church rests. This isn't knocking the Church down, it is shoring it up.

The equivalent for economics might be Adam Smith's twin epics, the "Wealth of Nations" and the "Theory of Moral Sentiments". A really good critique of modern economics might be that it has become infected with the ideas of thinkers such as Ayn Rand and has lost its moral foundation. Way too much attention is paid to wealth and not nearly enough to morality. But I don't see this in these Theses. There is simply no reference to, or reverence for, the founding fathers of economics. The authors simply state their own agenda.

I have been as critical as anyone of modern (macro)economics. I would like to be able to support these 33 Theses. But in conscience, I can't. They are not the devastating critique of modern economics that they claim to be. They are simply a hostile takeover bid. I want modern economics to repent and reform, not be replaced with another flawed paradigm.

So I reject the 33 Theses as they stand, and I call on the authors to repent and return to the true faith of Adam Smith, Ricardo, Wicksell, Walras, Keynes, and many others upon whose shoulders we stand.

Related reading:

When the Nile floods fail
The economics profession does not need a "reformation" - Independent
Economics for the Common Good - Jean Tirole
The Econocracy - Joe Earle & Cahal Moran (this is a biting critique of the way economics is taught in major universities, strongly recommended)
The Stern Review: the economics of climate change - Nick Stern
Risk, Uncertainty and Profit - Frank Knight
The General Theory of Employment, Interest, and Money - John Maynard Keynes (pdf)
An Inquiry into the Nature and Causes of the Wealth of Nations - Adam Smith (via Econlib)
The Theory of Moral Sentiments - Adam Smith (annotated)

Image from Twitter. 


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  2. Hi Frances,
    Another very thought provoking article, thankyou, you certainly have a formidable knowledge of the 95 theses! But I wonder if we are not pushing the analogy a bit far here? You point out, quite rightly, that Luther's objective was to return the church to its own founding principles and to challenge the corruption that had become so widespread. Even if the hierarchy of the church at the time might have been ready to dismiss his criticism (and to silence the critic), fortunately for him (and us) there were enough people about at the time who recognised the truth of what he was saying and it took hold.

    But I don't think that holds in the same way for economics. What are the 'true principles' to which we should return? I don't think there is a consensus, or ever has been, in economics (and definitely not in macro). If we look back over economic theory just in the period from Adam Smith to Keynes, we'll find so many different schools of thought --- the 'classicals', the neo-classicals, the German historical school, the Austrians, the institutionalists, and all the flavours of Keynesians, just to mention a few, most of which are in strident opposition to each other.

    So, I think what Steve Keen and co are pointing out is that one of these has now established a hegemony and is using that to exclude other approaches. It's very difficult to get anything published in a 'top' journal unless it is based on microfounded, rational expectations general equilibrium models. No place for disequilibrium economics, or heterogeneity, or anything that doesn't fit into the narrow prescriptions of the 'mainstream'. Now obviously, the mainstream are not a monolithic bloc, there are dissenters within, but the degree of dissent is limited.

    You ask "Is Keynes not mainstream? Haven't the authors simply missed a golden opportunity to call the macroeconomics profession to repent and return to the true faith?", No, Keynes is definitely not mainstream, not since the 1970s when 'Keynesian economics' (but not necessarily the Economics of Keynes) was 'disproved' (though no-one seems to be willing to publish the [dis]proof). Apparently, Lucas tells his macro classes that it's only necessary to spend 10 minute on Keynes because "it doesn't work". And he is (for now at least) one of the leaders of the mainstream. So 'asking the macroeconomics profession to repent and return to the true faith' is going to be dismissed out of hand as just a lot of moaning from the old Keynesians.

    My reading of the demands of Steve Keen and co differs from yours (although I agree that some of your wording would improve some of their theses); but I think they are not trying to supplant the current mainstream with their own approach, but demanding that the academy is opened up to allow other competing approaches alongside, to complement and to challenge the status quo. I think that's all that can be hoped for, a more pluralist approach in place of the existing monoculture.

    1. Good grief. Keynes is completely mainstream. People differ in their interpretation of his work, that is all. Robert Lucas is co-founder of the New Keynesian school of economics. They would hardly have called it "New Keynesian" if Keynes was no longer important.

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    3. I don't need to, thank you. It is a straightforward summary of New Keynesian theory by Greg Mankiw. I disagree with Mankiw on many things, but there is nothing controversial in this piece.

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    5. My bad, Lucas is co-founder of Neo-classical school not New Keynesian. However, the rest of what I said stands. the New Keynesian school is completely mainstream. Mankiw himself is a prominent New Keynesian, and his textbooks dominate undergraduate teaching.

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    9. Don't tell me what sources to use.

      And it does not matter when "New Keynesian" became mainstream. It is now.

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  3. Frances, A brilliant and learned critique of Keen's 33 theses. I share your disappointment that the critique was not nearly as powerful as it could and should have been. If you are deliberately modeling your critical theses on Luther's theses, you need to reproduce at least in some small measure the devastating power of Luther's theses. As you show, Keen falls way short. A pity, because modern macro does indeed make a travesty of neoclassical economics. And Keynes wasn't the only one who recognized the existence of uncertainty, Frank Knight, a truly orthodox neoclassical economist, and a founder of the Chicago School, did so as well.

    1. Yes. The thesese seems to be ignorant of numerous fields of economics including public choice, law and economics, new institutional economics, property rights economics, constitutional political economy, new economic history, new monetarist macroeconomics, modern labour economics, resource and environmental economics to name a few.

    2. Thank you David. A great summary.

      I completely agree about Frank Knight. I did mention him, but I didn't cite his work. I've now added his book to the Related Reading list.

  4. Ronald Burgess wrote "Public Revenue Without Taxation" in the late 1990s.Its very scholarly and offers a prescription to our economic woes.I would be interested in your analysis.

  5. drive-by commenter19 December 2017 at 08:58

    you really think econocracy is a "biting" and recommended critique of the way economics has taught? woof.

  6. Very good article above. A point which Keen does not seem to understand (and apologies if I’m repeating something Francis said) is thus.

    Keen makes much of the alleged failure by economics to consider inequalities and the environment (e.g. his Nos. 1,2,6,7,8,17,18 & 19). The first flaw there is that about 99.9% of economists are well aware of excessive inequality and environmental matters, plus they fully support measures to deal with those problems.

    Second, and contrary to Keen’s suggestions, it is not necessary or desirable to get equality and environmental matters intimately mixed up with economics. That is, there is much to be said for economics concentrating on what it has always concentrated on, i.e. minimising unemployment and maximising GDP. While government concentrates on what it has always concentrated on, namely dealing with the defects in the free market: e.g. taxing the rich, looking after the poor, and imposing taxes etc on polluters.

  7. Splendid, admirable post. Keen could have take the example of Keynes, who worked with the instrumentals of marginal economy just to demonstrate that its predictions were wrong.

  8. I noticed Steve Keen trying to limit the damage to his reputation by claiming on Twitter that he did not mean his theses all that seriously. But in today's Guardian there's a letter from 60 academics which DOES TAKE the theses seriously. I'm now even more confused than normal...:-)

  9. "Economics is all about the allocation of scarce resources."

    That is a lousy defence. The point they are making is that it is based on an assumption that there are unlimited wants. That is people are greedy, and we have to keep satisfying that greed- even with scarcity. That is what all those indifference curves and budget lines are all about. That is what the optimisation conditions which you must specify in all economic models are all about. These assumptions are based on questionable scientific and moral foundations. Put another way, neo-classical economics need better ontology and epistemology.

    What these people are trying to do is something critics of the financial sector and the models they were using before the crash were trying to do before the crash. Or people trying against all odds to point out the discrimination women face in the workplace. They are always brought down by opportunists like you. I found your article overly dismissive. Instead of making the point that the economics establishment is extremely difficult to take on, you rubbish the messager. The points they are making are important, even if you think they are not well articulated. That is the point that continually needs to be made.

    1. Anonymous,

      Economics has always been about the allocation of scarce resources. You seem to prefer to regard it as being about satisfying unlimited wants: but wants don't have to be satisfied, and no-one in economics has ever said they do. Indeed it is impossible to satisfy all wants when resources are scarce, as throughout history they always have been. The problem is one of distribution, and that is, as you correctly point out, as much a moral as an economic problem.

      It would be a fair critique of modern economics to say that insufficient attention has been paid to problems of distribution, and the establishment has been far too willing to assume the essential magnanimity of those fortunate enough to have wealth. This is at variance with what we know of human nature, and is thus further evidence that modern economics has lost its moral foundation - which is the point I made in the third to last paragraph of the post.

      To add to this problem, however, one of the principal challenges facing economics today is the prospect of abundance. It is all too easy to react to abundance by creating artificial scarcity in order to preserve some concept of monetary value, rather than rethinking what we mean by "value".

      You clearly aren't familiar with my work, or you would know that I am anything but an "opportunist". I have been a major critic of the economics establishment over many years now. It is unfortunate that rather than addressing the issues I raise, you resort to ad hominem attacks.

      In my considered opinion these "theses" do not demonstrate the intellectual rigour that is needed to take on the economics establishment. Criticising the "theses" for lack of scholarship and logical distortions is not "rubbishing the messenger". It is a legitimate critique of what I regard as a seriously flawed piece of work. I have not said the points are not important, but if they are to disrupt the economics establishment, they will have to be far better founded.

      I must now remind you of the comments policy of this site:
      - please refrain from personal attacks on me or anyone else commenting here
      - please stick to the topic.
      I will not post any more comments from you that contain personal attacks on me or anyone else. By all means discuss the points raised in the post or in the comments. Do not discuss the poster or the commenters.

    2. The economic problem according to neo-classical economics is "how to satisfy unlimited wants with limited resources". Nobody in the profession, except what the mainstream sees as "freaks" on the fringes actually whether people do have unlimited wants, and if so, why. Pareto might have been a philosopher, but nobody in philosophy says that his is the one and only correct view, and they might actually point out that it could be, and in fact most likely is, wrong.

      The point these people were making was that we need more plurality in economics and economists and non-economists need to question why economics looks at things the way it does. At the moment you cannot make this point often enough. Noah Chomsky is good on where this stuff about scarce resources and infinite wants comes from and why capitalism wants us to look at things this way.

      Personally I thought the 33 theses were surprisingly good, and given its relatively shortness, it covered a lot of ground.


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    4. Anon 23 Dec 7.41 above with missing verb added:

      "Nobody in the profession, except what the mainstream sees as "freaks" on the fringes actually asks whether people do have unlimited wants, and if so, why."


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  11. You gave Venezuela as an example of what happens when politicians don't believe general principles of economics apply to them. What I struggle with is how there seem to be opposite views as to what is behind the mess in Venezuela. One set of economists seem to say that Venezuela is correct to choose to denominate government debt in USD and all the problems are instead due to over ambitious social programs etc. The other set of economists claim that if only Venezuela were to have government debt denominated in free floating Venezuelan currency, then it would have ample resources and financial capacity to have those social programs. As a non-economist, I really struggle to get my head around how such a deep seated controversy with such profound consequences is seemingly skipped past. How can we defer to experts' opinion when they are so contradictory? Worse, there seems to be no inclination to test and potentially abandon either viewpoint based on failed predictions.

  12. I thank this blogger for directing me to Keen's list, which seems timely and apposite to me. Spot on! There aren't nails big enough to nail the detailed critiques she thinks lacking to any door. Keen has already done his bit there, and continues to do so.

    And, speaking of detailed critiques, I'd be interested to see this blogger's reasons for thinking current orthodoxy could be refuted by reference to the "true faith" of Ricardo, Walras and Wicksell..?

    1. As you seem to have made up your mind already that the "founding fathers" of economics are of no relevance in your new religion, I don't see any point in explaining my reasons for appealing to them.

    2. No, the problem (at least with Ricardo, Walras and Wicksell) is that you'd just as likely be handing victory to advocates of the kind of economics Keen criticises.

  13. Frances: Just stumbled upon you from twitter. The last five months I have been involved with MMT Modern Monetary Theory in the USA and some of the economists that are considered a cult. They had their first international conference in Kansas City Missouri during September and some of the sessions were quite interesting. Bernie Sanders has an MMT economist Stephanie Kelton on the Board of the Sanders Institute. Professor Kelton made a comment that the Economic textbooks have not been edited or rewritten since we went off the gold standard behind our currency.


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